What’s in Your Wallet?

Felix Salmon points us to Arianna Huffington’s campaign to get people to move money out of the big four banks: JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo. (Over at Wells, which was “just” a $600 billion bank until it bought Wachovia, they must be wondering if it was worth the headache.) She suggests community savings banks here; Salmon suggests credit unions here; Uncle Billy also suggests credit unions here.

Salmon is skeptical that it will work, because changing your bank is a pain. I can testify that it’s not a lot of hours of effort, but you can’t just sit down and do it in one shot; for example, you need to request direct deposit forms (often paper) from your employer(s), get them, print them out, often mail (!) them somewhere, then check your bank statements periodically to make sure the switch happened. Then there’s the issue that if you go a month without direct deposit many checking accounts will charge you a fee, which creates a problem when switching. (However, at my Bank of America account, even without direct deposit you can avoid a monthly fee by keeping a $1,500 minimum balance.) Killing automatic bill pay and setting it up in your new account can usually be done in one sitting, although you have to remember that some of those payments are initiated by your bank account and some are initiated by the payee. So it’s doable, but it’s a pain.

I think another issue is that while outrage at Wall Street remains high, most people don’t connect the bank in their town with Wall Street, even if it is a branch of Bank of America. When you walk into a Bank of America branch, it doesn’t feel like Wall Street. It doesn’t even really feel evil; it just feels ugly and corporate and inefficient. I suspect it’s still a mystery to many people how mortgages issued by the bank on the corner are connected to CDOs, the housing bubble, and vast trading profits on Wall Street. My hatred of Bank of America is mainly due to the experience I had with them last summer trying to get old bank statements for a client. (I also recently noticed that while there used to be three Bank of America branches in my town–probably because Fleet, which B of A bought in 2004 or so, was itself the merger of three banks–now there is only one.)

That said, I’m all in favor. I recently canceled my Citibank credit card that I had for twelve years (my remaining cards are American Express and U.S. Bank, which isn’t particularly virtuous but at least avoids the big four), and I only have one step left to close my Bank of America account (need to verify that my last direct deposit has switched). I use Greenfield Savings Bank (0.75% on checking, without the hassle of a “reward” checking account) and Peoples Bank (1.5% on savings, and other banks’ ATM fees refunded for checking accounts). (For those in Western Massachusetts, I hear Florence Savings Bank is good too).

Switching banks can also be good for your wallet, since the biggest banks almost always pay the lowest deposit rates (and charge relatively high mortgage rates). I look at Bank Deals when I’m looking for a new account.

Maybe next Arianna Huffington can get everyone to pull their money out of actively managed mutual funds and send it all to Vanguard. Now that would be good for everyone (except a few fund managers, of course).

48 responses to “What’s in Your Wallet?”

I dumped the big banks years ago; decided that any place that left me feeling like I needed to count my fingers, er, claws after shaking hands wasn’t a place I needed to do business. (Though these days, that’s almost any big business.)

One caution: I have the impression that some credit unions are being corrupted. Caveat emptor.

If everyone moved money to passive index funds or etfs, one net effect would be to create a lot more dumb liquidity. I mean dumb in the sense of non-smart money. The reasons ETFs work, and the reason it’s hard to beat the markets long term, is precisely because there are so many people trying to beat them. In sufficient amounts, etf/index fund liquidity creates fantastic arbitrage opportunities at the individual security level.

My family dropped big banks years ago. The benefit of our Federal Credit Union is 1), when you call you get a human within 3 or 5 rings, and 2), we haven’t had an overdraft charge since we became members. What novel concepts!

Think it is a great campaign though… time for the fight to go to the consumer since it’s clear that our fine members who represent us can’t do a damn thing!

Keep in mind that moving to a new bank doesn’t mean you have to completely shut down your relationship with the big bank immediately. Most banks let you set up an account with a very minimal balances. You can then slowly move over your bills to the new bank as they come in, automatic bill pay being one of the ways that banks attempt lock-in. Over time, you can draw down your balance in the big bank until, eventually, the account is small enough to not matter or you close it.

And I’ve used credit unions exclusively for my money for over 25 years now.

I’ve got mutual funds with Fidelity and Vanguard. Although Fidelity is beginning to piss me off.

JP Morgan is the evilest of evil. Took over five years to clear my mom’s very uncomplicated estate, and I’ve hated them ever since. Unfortunately my disabled sister and nephew have trust funds with them. Otherwise I would wish J.P. Morgan straight to hell.

Clearly he did suck it up. The point was to demonstrate Salmon’s reason for skepticism: not enough people will switch because switching is a pain.

Personally, I switched from BofA to Florence Savings Bank a couple of years ago and haven’t looked back. I do still have a BofA credit card, but it sits idle; I only keep it for my credit record, as it’s my oldest credit account.

I wonder if this is going to be a growing theme for 2010? That consumers/citizens/electorate will start to realise that the only way to correct so many of the ills of representative government is to vote with our feet, to mix the odd metaphor! And I am not advocating civil disobedience – plenty of passive ways to send messages.

Even with small banks you have to shop around. One I used to like recently introduced binding arbitration agreements (on time deposits!) as a condition of doing business. I say this ought to be illegal; I’m still waiting to hear how the Federal Reserve feels about it.

I’ve been using etrade; they usually provide great rates and didn’t get too burned in the latest go-round. They aren’t paying inflated rents for branches so seem to actually pay attention to service quality. It’s also exciting to think your money is just sitting on a linux box in some back alley.

My wife and I moved our checking account and safe deposit box out of Band of America six months ago. The reason was simple. They started hitting us with all kinds of fees.

Having made bad investments and needing to be bailed out, BA executives saw their bonuses in danger. They raised the money to get out from under TARP partly by dinging their customers.

Anyone who lets them do this to them is decidedly lacking in self respect. It was a minor hassle to move the account to a local bank, but you better believe we’re happy we did. We also have a little more of our own money now than we would have if we’d stayed with BA.

The authors of this blog may be pleased to learn the influence of Baseline Scenario has spread to the Teendom of Girls in Walnut Grove (a suburb of Metro Vancouver) in the following way:

Having discovered the Khan Academy through a Baseline post, I sent my niece in Walnut Grove the link, suggesting she and her friends might want to check out this very cooOOool website and improve their math skills at the same time.

On a frequent basis I tell her: It’s very important for girls to be financially independent when they grow up and math is very important. You need math to become an architect, engineer, economist, doctor … You will have more options when it comes to choosing a career.

I thought my niece was feeling a bit glum because her parents are separated. She said no, half her class has divorced parents so its no big deal. But last year she was not doing so well at school.

This Christmas I was delighted to learn she received — 97% in art and an 86% in math. — Her mother said I wonder what happened to the 3% in art. My niece says she doesn’t really like math she just does it, 86% is a just a low A, her best friend is doing an honours math for something to do, but she really doesn’t like math either.

Math can be very interesting, there’s even something called imaginary numbers, I said. It made her laugh. How can numbers be imaginary!

I can’t really say if she and her friends actually explored the Khan Academy. I didn’t want to pry too much. But maybe they did.

As for teen girls in Walnut Grove and no doubt everywhere else … My niece and her bestfriends keep in touch 24/7 by chatline, cell phone, text messaging, skype and whatever else … they have their own Youtube channels where they post their digital graphics and animation.

I’m thinking about asking my niece to help me animate the front cover of Akerlof and Schiller’s book Animal Sprits. We could post the animation on Youtube and even Baseline.

Ad for the Baseline link to the Khan Academy, I really can’t say if teen girls in Walnut Grove are studying mathematics via Youtube videos posted by the Khan Academy (after all they do attend school) but maybe they did take a look :)

While you are at it try this extremely simple thing you can also do to help yourself out. Not only that it will SLOW DOWN all of this Government spending on the backs of our children and grandchildren!!!

Simply change your deductions on your W4 with your employer to 4, 5 or even 6 and get YOUR money in YOUR check. Remember to put some aside for what you will now owe on April 15’th (of course this works even better if you file an extension before then).

Now the Government won’t be holding YOUR money and collecting interest on it while paying for things with YOUR moeny that you don’t agree with.

You will have to pay eventually, but the longer we make the Government wait for its tax money they have already spent the less they will be able to spend.

We have gone to the local credit union. We won’t ever go back. The credit union is flexible, local, nice, and doesnt’ have all the crazy fees for EVERYTHING that the commercial bank we belonged to did. They give us the benefit of the doubt, which is nice. The credit union has all the online banking that is necessary to stay on track, too.
We have our investments with a smaller organization that may parents use and “extra” cash in ING. We will owe on our credit for a while but we are making a concerted effort to dig out so that we don’t get more of our money than is absolutely necessary.

I’ve been thinking about this very issue for some time and I think it’s a great idea. If the people want to punish these banks, take away their deposit base.

I’ve long been a fan of credit unions and have spent many years professionally promoting them. They have sometimes gone too mainstream for me, i.e., behaved too much like banks, but they are a far cry better than almost any bank you can name.

This is a little off topic, but Yves Smith over at naked capitalism just did a fantastic post alleging Goldman Sachs and Morgan Stanley created synthetic asset backed CDO products for the express purpose of shorting the products when they inevitably blew up leaving the buyers holding the short end of the stick. Pretty astounding if it’s true:

I don’t know if Goldman Sachs does business with lowly mortals now that they’ve transformed themselves into a bank-holding company, but even if they did I’d say people should avoid them. Same goes for Morgan Stanley.

Diamonds are a girl’s best friend. NCUA member Credit Unions are a man’s best friend. And if you’re currently a member you often get a monetary reward for referring people (say $10). Be sure to ask for my real name before you go http://www.creditunionsonline.com/

I could mention some of us were smart enough to get a Credit Union account long before the new millennium began, or that it was some people’s first ever savings/checking account. But membership wasn’t so easy back then, so I’ll just thank God I’m a lucky guy.

But frankly, if you have a government job and your money is at a bank and not a Credit Union, let’s just say you started off from a bad gene pool.

I do have to say, that Yves Smith’s post you are referring to, is one of the best blog posts I have ever seen. OUTSTANDING. Of course the real credit goes to Gretchen Morgenson and Louise Story at the New York Times. But Yves’ break down and analysis also added a great deal of value to the original story.

I have always been a Credit Union or Small Community Bank guy except for Credit Cards. I know it is greedy but I was tempted by Chase’s 1+% Cash back Credit Card 2+ years ago. I am looking for something as good from the local Credit Union or Community Bank but have not found anything as good. I might eventually bite the bullet and move my credit card but do you know of any local ones that are as good?

Yes, starve the Beast. It is a pain to switch banks accts. I just closed down two. The laborious part is going all the places you’ve shopped and left a credit card number. The direct deposits were easy. But it is a good idead to lieave them open another month just to see what shows up. A small fee may save you a bundle.

I presently have all of my money in BOA. I pay no fees except for their special security services, and, although I have two accounts, I never have more than $3000 in all combined accounts. I don’t believe that my SS check each month creates any kind of windfall. And, I have my account there because the next closest bank is three times as far. I have never had a problem with them, except that I entirely disagree with their purchase of Merrill, especially the shady way in which it transpired. I would certainly side with all of those recommending moving money out of the big 19, especially those with money that actually counts (say $10,000 or more).

However, that said, the real issue in cleaning up and crippling the 19, is getting rid of the policies that have created infinite security for their wayward ways, including infinite credit lines with the FED for nearly no cost, and the multitude of guarantees, both overt and covert which seem to flow endlessly from Washington. We will have a “double dip” in 2010, and, if these guys think that a bailout will be available, the providing of that would be viewed by the public as obscene, and could lead this country toward anarchy, big time. If we think that the tea parties are gatherings of a few whackos and disguntled and misled voters, wait until we see massive riots and mob scenes, and the underclass of America truly rises up in violent protest.

I don’t have an account with any of those big banks, but I think it’s a good idea. I bank with local banks and I have friends who are happy with their credit unions. It may be a hassle to change banks, but how else do we make the point that we don’t approve of “too big to fail.” To really make an impact, students would have to get their universities to switch banks and same goes for pension funds. It worked in South Africa to end apartheid.

You get higher rates on savings/checking and lower rates on loans at Credit Unions. If you have any kind of savings the interest advantage will more than make-up for the bank exit fees. Even if your account balance is low, the lower mortgage rates at Credit Unions will makeup for the bank exit fees.

“Maybe next Arianna Huffington can get everyone to pull their money out of actively managed mutual funds … Now that would be good for everyone”

what? have you heard of price discovery and capital allocation? what would the trackers track if everyone was a tracker? Investing in trackers an example of an individually rational act in the same vein as free-riding is a rational act in a public good setting. We need more active investment, not less.

I am a retired employee of Wells and my husband is a retired employee of BOA. As such there are many benefits to maintaining our accounts there…nonetheless we occasionally consider moving them. Every time we hear about retaining the best and the brightest we cringe – the best and the brightest were driven out in the acquisitions of the late 90s. These two banks went from focusing on running good solid operations to making the numbers – and they will make the numbers no matter how much creativity and stupidity is required.

In choosing a new bank, here are a few things to consider. Look at their capital structure. Many failed banks have inadequate capital. How did they get in this situation? Here’s one example. Some banks have an account named “Undivided Profits”. There is nothing unusual here except you would expect the account to always have a positive balance. Not so. Many have negative balances. What kind of accounting is this? There should be a rule preventing negative balances in this account. These negative balances reduce capital. In some banks, these balances move from positive to negative and in some cases increase from quarter to quarter.

What is the nature of their “Cash Account”? Do they have any money of their own? If all they have is what is owed them from other depository institutions or in the process of collection, then caution is warranted. What if the Federal Reserve Board owes them money? It may be easier for the Fed to close this bank than pay the bank. Some banks don’t even have to report the detail of what is in their “Cash” account. How do you evaluate them?

Another example is their “Other Borrowed Finds” and “Subordinated Debt” accounts. When these balances are a significant part of their liabilities, their risk is increased and contributes to being over-loaned.

Are they buying or selling Fed funds? Many banks just borrow more to loan out thereby increasing their risk. The better banks instead have lent their money to the Feds.

It is very evident in some cases which banks have made adjustments since June 30, 2008. Rather than stick their head in the sand with business as usual, they have cleaned up their balance sheets and improved their capital positions.

It is not enough to just go pick out a local or community bank and hope for the best. As for credit unions, how are you going to evaluate them when there is no data available? I would agree with some bloggers if things had not changed. It used to be that they were private entities of a company or non-profit. Now anybody can join with a $100.00 deposit. I suspect they are also over-loaned and subject to too much risk.

A negative ” undivided profits” account means that cumulatively the bank has posted more losses and paid out more dividends than it has made profits. It means the bank is living off it’s permanent capital put in by investors.

The more subordinated debt the better so long as the banks basic capital of Stock and Paid in Capital is intact and not eaten into by negative ” surplus” accounts. Subordinated Debt is just that. Other creditors and depositors are senior to subordinated debt. There are a number of types of subordinated debt. A lot of this debt is also convertible to capital at special prices that make it attractive to investors. This same debt often is satisfiable at the option of the issuer in shares. There are all kinds of gradations of subordination. Here it is very important to understand the details of subordinated and other debt.

If you really want to hurt a bank, this is not the way to do it. Remember, in the upside-down world of banking, your checking and savings accounts, certificates of deposit, etc., are their liabilities (potential payouts) and your loans, credit cards, lines of credit, and so on, are their assets (potential income). Pulling your checking and savings out of a major bank actually reduces their liabilities.

Instead, keep your checking and savings at the major bank, but pay off your loans and credit cards with them. This way you reduce their assets while leaving their liabilities intact.

Moving funds out of banks hurts them. And here is why it does. When you pull your money out of a bank, you reduce their deposits and that tends to make them over-loaned. At least theoretically, they can’t loan out more than they have received from depositors. Which means they don’t have any more money to loan. That hurts the bank. The corollary is that moving funds in fact aids the new bank by increasing its deposits thereby giving it more money to loan and leaving it in a more balanced loan position.

Unfortunately, I and my best friend have experience with the local credit union, and that institution is one big screw-up factory. They are constantly getting basic account maintenance issues wrong. Recently I opened a CD with the CU in question. They inexplicably shifted the money into a checking account that paid virtually no interest. When I asked for a correction, they sent a CD receipt with a 60-month maturity date instead of the 30-month I signed up for.

Ted K’s point was that anyone in those lines of work have had the credit union option for a long time and should have availed themselves of it. (Most did.) It was only recently that *everyone* had access to credit unions.